STATE OF LOUISIANA

COURT OF APPEAL

FIRST CIRCUIT

NUMBER 2006 CA 1140

C W

2006 CA 1141

C W

2006 CA 1142

YeeIt J J

If

L

AND

NUMBER 2006 CA 1143C W

2006 CA 1144

C W

2006 CA 1145

AND

NUMBER 2006 CA 1158

C W

2006 CA 1159

C W

2006 CA 1160

AND

NUMBER 2006 CA 1161

C W2006 CA 1162

C W

2006 CA 1163

J ROBERT WOOLEY AS

COMMISSIONER OF INSURANCE FOR THE

STATE OF LOUISIANA

VERSUS

THOMAS S LUCKSINGER MICHAEL D NADLER STEPHEN J

NAZARENUS SCOTT WESTBROOK MICHAEL K JHIN WILLIAM F

GALTNEY JOHN P MUDD EXECUTIVE RISK INDEMNITY INC

EXECUTIVE RISK MANAGEMENT ASSOCIATES EXECUTIVE RISK

SPECIALTY INSURANCE CO EXECUTIVE LIABILITY UNDERWRITERSAND GREENWICH INSURANCE CO AMCARECO INC AMCARE

MANAGEMENT INC

CONSOLIDATED WITH

J ROBERT WOOLEY COMMISSIONER

OF INSURANCE FOR THE STATE OF

LOUISIANA IN HIS CAPACITY AS

LIQUIDATOR OF AMCARE HEALTH PLANSOF LOUISIANA

VERSUS

FOUNDATION HEALTH CORPORATIONFOUNDATION HEALTH SYSTEMS INC

AND HEALTH NET INC

CONSOLIDATED WITH

J ROBERT WOOLEY COMMISSIONEROF INSURANCE FOR THE STATE OFLOUISIANA AS LIQUIDATOR FOR

AMCARE HEALTH PLANS OFLOUISIANA INC IN RECEIVERSHIP

VERSUS

PRICEWATERHOUSECOOPERS LLP

Judgment Rendered DEe 3 0 2008

Appealed from the Nineteenth District Courtin and for the Parish ofEast Baton Rouge

State of LouisianaSuit Number 499 737 c w 509 297 c w 512 366

Honorable Janice G Clark Judge Presiding

2

Joseph E Cullens Jr

Baton Rouge LA

Counsel for Plaintiff AppelleeJ Robert Wooley as ActingCommissioner of Insurance

and Liquidator ofAmCareHealth Plans ofLouisiana Inc

Guy M HohmannAustin TX

Counsel for Plaintiff AppelleeJ Robert Wooley as ActingCommissioner of Insurance

and Liquidator of AmCare

Health Plans of Louisiana Inc

Kimberly S MorganBaton Rouge LA

Counsel for Plaintiff AppelleeJ Robert Wooley as ActingCommissioner of Insuranceand Liquidator of AmCareHealth Plans ofLouisiana Inc

Edward J Walters Jr

Baton Rouge LACounsel for Plaintiff AppelleeJ Robert Wooley as ActingCommissioner of Insurance

and Liquidator of AmCareHealth Plans of Louisiana Inc

Sue BuserGonzales LA

Counsel for Plaintiff AppelleeJ Robert Wooley as ActingCommissioner of Insurance

and Liquidator of AmCareHealth Plans of Louisiana Inc

Jonathan C AugustineBaton Rouge LA

Counsel for Plaintiff AppelleeJ Robert Wooley as ActingCommissioner of Insurance

and Liquidator of AmCareHealth Plans of Louisiana Inc

James C PercyBaton Rouge LA

Counsel for Defendant AppellantHealth Net Inc

David M KerthBaton Rouge LA

Counsel for Defendant AppellantHealth Net Inc

Robert B Bieck JrNew Orleans LA

Counsel for Defendant AppellantHealth Net Inc

3

Joseph J McKernan

Baton Rouge LA

Counsel for Plaintiff AppelleeJean Johnson as Texas Special DeputyReceiver

David M LathamNew Orleans LA

Counsel for Plaintiff AppelleeLouisiana Department ofInsurance

Keary L EverittNew Orleans LA

Counsel for Plaintiff AppelleeLouisiana Department of Insurance

Gary P KoederitzBaton Rouge LA

Counsel for Defendant AppelleeBestCare Inc

Wendell ClarkBaton Rouge LA

Counsel for Defendant AppelleeThomas S Lucksinger Michael D

Nadler and Stephen J Nazarenus

Claude F Reynaud Jr

Baton Rouge LA

Counsel for Defendant AppelleeProskauer Rose LL P andStuart L Rosow

Harry J Philips Jr

Baton Rouge LA

Counsel for Defendant AppelleeWilliam Galtney Jr andMichael K Jhin

Mary Olive PiersonBaton Rouge LA

Counsel for Defendant AppelleePriceWaterhouseCoopers LL C

V Thomas Clark Jr

Baton Rouge LA

Counsel for Defendant AppelleePriceWaterhouseCoopers LLC

Robert J Bums JrBaton Rouge LA

Counsel for Defendant AppelleeGreenwich Insurance Company

David H TopolWashington D C

Counsel for Defendant AppelleeGreenwich Insurance Company

George B Hall Jr

New Orleans LA

Counsel for Defendant AppelleeExecutive Risk Management andExecutive Risk Specialty Ins Co

4

Merril Hirsh

Washington D CCounsel for Defendant AppelleeExecutive Risk Management andExecutive Risk Specialty Ins Co

Kelsey Kornick Funes

Baton Rouge LA

Counsel for Defendant AppelleeExecutive Risk Management andExecutive Risk Specialty Ins Co

David L GuerryBaton Rouge LA

Counsel for Defendant AppelleeScott Westbrook

William C Kaufman III

Baton Rouge LA

Counsel for Defendant AppelleeM Lee Pearce

Dominique J SamBaton Rouge LA

Counsel for Amicus CuriaeCharles C Foti Jr Atty GenOn Behalf of the Commissioner of

Insurance Liquidator ofAmCare

Health Plans of Louisiana Inc

Michael Charles GuyBaton Rouge LA

Counsel for Amicus CuriaeCharles C Foti Jr Atty GenOn Behalf of the Commissioner ofInsurance Liquidator ofAmCareHealth Plans of Louisiana Inc

BEFORE CIACCIO LANIER and CLAIBORNE JJ1

I The Hon Philip C Ciaccio Judge Retired the Hon Walter I Lanier Jr

Judge Retired and the Hon Ian W Claiborne Judge Retired are serving as

judges ad hoc by special appointment of the Louisiana Supreme Court

5

Table of Contents

I GENERAL FACTS 10II PROCEDURAL mSTORY 25

In INTERPRETATION OF LAWS 33

IV STANDARDS FOR APPELLATE REVIEW OF FACTS AND

LAW 35V CONFLICT OF LAWS 38

A Cont1ict of Laws Facts 39

B The Ruling of the Trial Court on the Issue of Choiee ofLaw

40

C Applicable Conflict of Laws Rules 42

1 Law Applicable to theTexas Case 51

2 Law Applicable in the Louisiana Case 53

3 Law Applieable in the Oklahoma Case 63

D Conclusion 68

VI STANDARD OFREVIEW OF FACTS IN THE TEXASCASE

68

A The Trial Court s Duty to Instruet aJury

69

B The Trial Court s Duties to Rule on Requests for JuryInstruetions and to Inform the Parties ofProposed JuryInstruetions Prior to Arguments to the

Jury71

1 Right to Submit Jury Instructions 72

2 Trial Court Duty to Inform Parties of Proposed JuryInstructions and Interrogatories 78

3 Right of a Party to Objeet to Proposed Jury Instruetions79

C Patent Jury Instruction Error 87

D Jury Instruetion and Interrogatory Errors87

1 Failure to Give Instruction 87

2 Erroneous Instructions 117

E Ineonsisteneies Between the Texas Jury Verdiets and JNOV and

the Judgments and Reasons for Judgment in the Louisiana

and Oklahoma Cases 160

1 Negligent Misrepresentation 160

2 Proximate Cause 162

3 Fraud 163

4 Allocation of Fault 163

5 Existenee of Pledged Capital for an HMO by HealthNet

171

6 Conclusion 172

F Reeapitulation of Errors AtTeeting the Texas Jury VerdietI72

G Conclusion 173

6

VII STANDARD OF REVIEW OF FACTS IN THE LOUISIANA AND

OKLAHOMA JUDGE TRIAL CASES 173

A Proximate Cause in the LouisianaCase

174

B The Tort of Conspiraey in the LouisianaCase

174

C Unfair or Deeeptive Acts or Praetiees in Violation of the Texas

Insurance Code 175

D Allocation of Fault 175

E Refusal to ProvideAdequate Written Findings of Faet and

Reasons forJudgment

178

1 Facts 178

2 Supplemental Assignments ofError

185

3 Applicable Law 186

4 The Trial Court s Reasons for the Nineteen 19 Month Delay192

5 The Trial Court s Failures to Comply with the Order to

Provide Written Findings of Fact and Reasons for

Judgment 193

6 Conclusion 195

F Applieation of Erroneous Texas Law in the Louisiana and

Oklahoma Cases 195

G Conclusion 196

vm PRESCRIPTIONIPEREMPTION STATUTES OF

LIMITATIONS AND REPOSE 196

A The Proper Proeedure to AssertPreseriptionlPeremption

199

1 Affirmative Defense 200

2 Objection of No Cause of Action 203

3 Summary Judgment 204

4 PrescriptionlPeremption 206

B Choice of Law 211

1 Liberative Preseription or Peremption in the Louisiana Case

212

2 The Texas and Oklahoma Exeeptions 226

C Conclusion 228

IX

X

SHAM SALE 228

PIERCING THE CORPORATE VEIL SINGLE BUSINESSENTERPRISE 251

A The Trial Court s Reasons 251

B The Law 254

1 Texas Law 254

2 Louisiana Law 255

7

3 Oklahoma Law 261

C Burden of Proof andPersuasion

262

D Common SBE Cireumstanees Pre and Post Sale 264

1 Pre Sale Health NetJAmCareeo SBE Issue 264

2 Post Sale Health NetJAmCareeo SBEIssue

267

XI LIABILITY FOR FRAUD 270

A Fraud in Obtaining Regulator Approval oftheSale

273

1 The Stoek Purehase Agreement and Side Letter Contract 274

2 The Finaneial Spreadsheet For The Sale 278

3 Failure to file Side Letter 351

4 Failure to file Letter of Intent 351

5 Failure to file Closing Agreement 354

B Fraud in Financial Reporting to Regulators After the Sale 359

1 Facts 361

2 The Law of Fraud 375

3 Conclusion 380

C Conclusion 382

XII LIABILITY FOR BREACH OF FIDUCIARYDUTY

382A The Texas Case 382

B The Louisiana Case 387

C The Oklahoma Case 391

D Conclusion 393

XIII LIABILITY FOR VIOLATION OF THE TEXAS INSURANCECODE 393

A The Texas Case 393

B The Louisiana and Oklahoma Cases 397

C Conclusion 397

XIV LIABILITY FOR CONSPIRACY 398

A The Texas Case 398

B The Louisiana Case 400

C The Oklahoma Case 403

D Conclusion 404

XV COSTS 404

A Facts 404

B Conflict of Laws on Costs 405

C Louisisan8 Law on Costs 406

D Allocation of Costs 409

8

LANIER J

These matters come before this Court on appeal from judgments

rendered by the trial court in the consolidated matters of J Robert Wooley v

Thomas S Lucksinger Nineteenth Judicial District Court Docket Number

499 737 J Robert Wooley v Foundation Health Corp et at Nineteenth

Judicial District Court Docket Number 509 297 and J Robert Wooley v

PriceWaterhouseCoopers LLC Nineteenth Judicial District Court Docket

Number 512 366 These three separate trial court actions La C C P art

421 were consolidated La C C P art 1561 for trial

The first and third numbered actions District Court Docket Number

499 737 and District Court Docket Number 512 366 assert tort causes of

action by J Robert Wooley Commissioner of Insurance for the State of

Louisiana in His Capacity as Liquidator for AmCare Health Plans of

Louisiana Inc the Louisiana Receiver In the second numbered action

District Court Docket Number 509 297 the trial court permitted the

cumulation of the Louisiana Receiver s tort causes of action with a pre

existing action that asserted a contract cause of action by the Louisiana

Receiver The Louisiana contract cause of action was not asserted in either

the first or third numbered actions

Carroll Fisher Commissioner of Insurance for the State of Oklahoma

in his capacity as Receiver the Oklahoma Receiver and Jean Johnson

Texas Special Deputy Receiver the Texas Receiver intervened in all

three actions asserting identical tort causes of action as those asserted by

Wooley in the first and third numbered actions The tort causes of action of

the Texas Receiver were tried and factually decided by a jury under the

9

docket numbers of all three trial court actions2

The Louisiana and

Oklahoma tort causes of action each were tried and decided by the trial court

under the docket numbers of all three trial court actions The Louisiana

contract cause of action was tried and decided by the trial court under the

docket numbers of all three trial court actions For clarity of adjudication

we will adjudicate all issues pertaining to the tort causes of action in a lead

opinion all issues pertaining to the Louisiana contract cause of action in a

second opinion and will dispose of the Texas Receiver s appeal in a third

opinion The title sheets of our opinions will show the District Court Docket

Number for the particular trial court action and the Court of Appeal Docket

Numbers that have been assigned to the judgment being adjudicated by this

Court in each action3

For the following reasons we reverse the trial court judgments in

favor of the Louisiana Oklahoma and Texas Receivers on the tort causes of

action in District Court Docket Numbers 499 737 509 297 and 512 366 and

render judgment and dismiss those claims with prejudice

I GENERAL FACTS

2 Even the interrogatories submitted to the Texas jury were under all

three District Court Docket Numbers3 The trial court did not render judgments adjudicating the issues in

each numbered trial court action individually instead the trial court

rendered the following four individual judgments 1 for the Louisiana

Receiver on both the contract and tort causes of action under all three

District Court Docket Numbers 2 for the Oklahoma Receiver on the tort

causes of action under all three District Court Docket Numbers 3 for the

Texas Receiver on the tort causes of action memorializing the jury verdict

on the tort causes of action under all three District Court Docket Numbers

and 4 against the Texas Receiver granting a judgment notwithstanding the

verdict JNOV in favor of Health Net under all three District Court Docket

Numbers Thus instead of having four judgments pertaining to three district

court docket numbers on appeal there are four judgments pertaining to

twelve District Court Docket Numbers on appeal

10

Foundation Health Corporation Foundation a Delaware corporation

with its principal place of business in California owned all of the stock of

health maintenance organizations HMOs that were incorporated and

operated in Louisiana Oklahoma and Texas Foundation Health a

Louisiana Health Plan Inc was the Louisiana HMO Foundation Health an

Oklahoma Health Plan Inc was the Oklahoma HMO and Foundation

Health a Texas Health Plan Inc was the Texas HMO In 1997 Foundation

merged with Health Systems International and became Foundation Health

Systems Inc This corporation is now known as Health Net Inc Health

Net 4

Beginning in 1994 Dr Malik M Hasan served as Chairman of the

Board of Directors and Chief Executive Officer CEO of Health Net

Health Net acquired the three HMOs in the 1997 merger and shortly

thereafter Hasan came to the conclusion that we were better off disposing

of those plans which may include closing them down or selling them At

this time Curtis Westen served as Senior Vice President and General

Counsel for Health Net Although Hasan had concerns about the viability

and or profitability of the HMOs he told Westen he could negotiate with a

buyer but you will not slow down the winding down processs

Hasan

directed that there could be a sale if three conditions are met 1 the buyer

knows what challenge he has 2 the buyer has the requisite capital and

4Some testimony and evidence referred to in this opinion pre date

Health Net s name change and identify Health Net as FoundationFoundation Health System or FHC For clarity we will refer to the

corporation as HealthNet

The term used to describe the process of gradually lessening the

business activity with the intent of bringing the business to an end

11

3 the regulators approve6 Hasan retired as President and CEO of Health

Net in August of 1998 and Jay Michael Gellert became CEO

Shattuck Hammond Partners a partnership providing investment

banking seryices was retained by Health Net and identified a group of

investors headed by Thomas S Lucksinger who is domiciled in Texas as a

potential buyer for the HMOs Lucksinger is a Texas lawyer who was also a

certified public accountant had been a partner in the Vinson Elkins Texas

law firm had been the CEO of a successful Texas HMO named NYLCARE

that had approximately 500 000 members taught a course on health care

policy at the University of Texas and served on the Solvency Oversight

Committee of the Texas Department of Insurance The Lucksinger group

fonned AmCareco Inc AmCareco a corporation chartered in Delaware

with its principal place of business in Texas Lucksinger served as President

of AmCareco Other individuals who were associated with andor served as

officers andor directors of AmCareco and its subsidiaries included Michael

D Nadler Chief Operation Officer COO Stephen J Nazarenus Chief

fliiancial Officer CFO7

Scott Westbrook Michael K Jhin8

William F

Galtney Jr John P Mudd and Dr M Lee Pearce These persons are

domiciled in Texas and Florida Correspondence concerning the possible

sale and purchase of the stock of the HMOs was exchanged between

Shattuck Hammond individuals at Health Net and individuals in the

Lucksinger group The correspondence discussed possible scenarios

6 Louisiana Oklahoma and Texas each regulate and require licensingto conduct insurance business within their respective states See La R S22 4 By 2008 La Acts No 415 effective January 1 2009 the LouisianaInsurance Code will be renumbered The renumbering will not change the

substance of the provisions For the sake of clarity we will refer to the

Louisiana Insurance Code sections as they were numbered prior to the 2009

renumbering 36 Okla Stat Ann 9606 V T eA Ins Code 9 801051In the record Mr Nazarenus name is sometimes spelled Nazarenas

In the record Mr Thin s name is sometimes spelled Jihn

12

whereby Health Net would 1 recoup loans it had made to the HMOs 2

acquire preferred shares of AmCareco stock9 and 3 cash sweep funds

out of the HMOs back to HealthNet

On April 17 1998 Health Net and AmCareco signed a Letter of

Intent that outlined an agreement to negotiate the sale and purchase of the

stock of the HMOs According to the terms of the Letter of Intent both

parties would negotiate in good faith and a target date for a definitive

agreement was set as May 18 199810

The Letter of Intent included a Term Sheet as an attachment The

Term Sheet set forth the principal terms for the acquisition by AmCareco

of the stock of the HMOs from Health Net The Term Sheet

included specific terms including Purchase Price Cash Sweep

ReserveReceivable True Up Put Rights and Right of First Refusal

The term Purchase Price Cash Sweep included a calculation for the book

value of the HMOs as of closing after the Restructuring Reserve as

defined below reversal referenced below lessthe

Cash Sweep as

defined below and Health Net would reverse prior to closing all non

cash restructuring and merger related liabilities and reserves the

Restructuring Reserves and settle prior to closing all inter company

accountsExhibit A attached to the Term Sheet set forth an estimated

calculation of such Health Net Cash Sweep as of February 28 1998

assuming the Restructuring Reserve reversal referenced above has been

effected The attachment contained a line item Cash Sweep 8 5 and

the following notations a ssumes the reversal of 63 million in

9 Hasan testified that if Lucksinger gets better contracts and

controls the business the HMOs may in the future have some value and

this was a reason to take the stock in AmCareco10 This target date was not met

13

Restructuring Reserves prior to the closing and b racketed numbers will

change in the event the Louisiana Local Deposit may be used to meet the

Statutory Requirements A review of the Letter of Intent shows that it

specially states that t his letter of intent and the term sheet are for the

purpose of setting forth the substance of the discussions between Acquiring

Co AmCareco and Health Net and to serve as the basis for continuing

discussions and preparations of definitive agreements for the Proposed

Acquisitions and that t his letter of intent and term sheet do not constitute

an agreement to consummate the Proposed Acquisitions or create any

binding obligation in connection therewith and no such binding obligation

shall arise unless and until such definititive agreements are executed by

fAmCarecolmlliHealth Netl Emphasis added

Pursuant to a Stock Purchase Agreement dated November 4 1998

Health Net agreed to sell and AmCareco agreed to buy all of the stock of the

HMOs Assisting AmCareco in the drafting of the Letter of Intent and the

Stock Purchase Agreement was Proskauer Rose a law firm with its principal

place of business in New Yark represented by one of its partners Stuart

Rosow a resident of New York The Stock Purchase Agreement included

the terms of the sale an outside date of closing of January 31 1999 11

representations and warranties by both the buyer and seller and other

additional provisions In particular the Stock Purchase Agreement provided

for the issuance of preferred stock in AmCareco to Health Net and a Cash

Payment from the HMOs to Health Net The Cash Payment was to be an

amount determined pursuant to a formula contained in the Stock Purchase

Agreement and was based on financial figures contained in an Estimated

Balance Sheet

II This target date was not met

14

Additional provisions of the Stock Purchase Agreement provided that

all non cash restructuring and merger related liabilities and reserves the

Restructuring Reserves shall be reversed and all inter company

accounts between the HMOs and Health Net shall be settled The Stock

Purchase Agreement also included stock redemption provisions pertaining to

put and call rights12

Health Net s right to compel AmCareco to redeem

Heath Net s AmCareco stock was secured by a 2 million letter of credit in

favor of Health Net A mechanism for a true up13

one year after the

closing would be used to determine the necessity of any adjustments to the

Cash Payment or the number of shares of preferred stock issued and would

be based on figures contained in a Final Balance Sheet

In addition AmCareco and Health Net entered into a letter agreement

the Side Letter on November 4 1998 The Side Letter provided that

AmCareco would attempt to acquire between 5 15 million in additional

private financing The Side Letter also provided that if the closing was

delayed beyond January 15 1999 and Health Net was required to supply

additional premium deficiency reserve funds PDR14

to the HMOs the

parties would negotiate a method for Health Net to be repaid any cash

loanedl5 to the HMOs that was contributed to the PDRs

12 These redemption rights gave Health Net the right to requireAmCareco to redeem and purchase the AmCareco preferred stock issued to

Health Net at a designated price at a certain point in the future and gaveAmCareco the right to redeem and purchase the stock from Health Net at a

designated price at a certain point in the future13 In business a true up usually means an accounting exercise to

balance or compare actual figures against earlier estimated figures14 A premium deficiency reserve PDR or a loss reserve is an

amount set aside for future losses if the premiums received are not sufficient

to meet all claims and expenses Only the State of Texas has a statutoryrequirement for a loss reserve V T CA Ins Code 9 421001 previouslyVATS Ins Code art 2139 effective until March 31 2007

15 Because the parties agreed that the money given by Health Net to

each of the HMOs was to be returned these transactions were nominate

15

When the closing was delayed beyond January 15 1999 Health Net

loaned 6 3 million to the HMOs Specifically Health Net loaned 700 000

to the Texas HMO in December 1998 33 million to the Texas HMO in

March 1999 and 2 3 million to the Louisiana HMO in March 1999 16

AmCareco raised only 8 5 million in additional private financing

In anticipation of the purchase of the stock of the HMOs AmCareco

engaged the Texas law firm of Vinson Elkins to prepare the required

Form A applications for regulatory approval of the acquisitions Virtually

identical Form A applications7

were submitted to the Departments of

Insurance of Louisiana Oklahoma and Texas The Louisiana Form A

application for acquisition of the Louisiana HMO contained a list of

investors as of March 1 1999 The investors and their respective investment

amounts were identified on the Louisiana Form A as Foundation

12 000 000 in the form of contributed HMO assets to be exchanged for

AmCareco Class A Preferred Shares Luxor Holdings II LLC or Assignee

Pearce 5 000 000 St Luke s Healthcare System Jhin 500 000

Lucksinger 500 000 Jeff D Nesmith 250 000 Brian Parsley M D

250 000 James Considine M D 250 000 Jon D EpsteinlJ Evans Atwell

contracts of non interest bearing loans and were not donations La C C

arts 1914 and 2904 et seq see also La C C arts 2891 et seq V T C A

Finance Code 30100216 It appears from the record that the funds Health Net loaned to the

Louisiana HMO in early 1999 were also described as funds necessary to

meet minimum statutory capital requirements See La R S 22 2010 The

record is not clear concerning whether the funds Health Net contributed to

the Texas HMO in late 1998 and early 1999 were for minimum statutorycapital requirements 1998 V A T S Ins Code art 20A 13j effective

April 30 1999 and renumbered as Tex Ins 843405 by Tex Acts 200177th Leg ch 1419 1 effective June 1 2003 or statutory loss reserve

requirements V TC A Ins Code 9 421001 previously codified at

VATS Ins Code art 213917 In Oklahoma HMOs obtain a regular HMO license a Form A is

not used For purposes of this opinion the license application in Oklahomawill be refereed to as a Form A

16

250 000 18 The Form A applications contained copies of the Stock

Purchase Agreement the Side Letter and financial statements and

spreadsheets relating to the HMOs and AmCareco including a Cash Sweep

and Preferred A Share Calculation This document prepared by Shattuck

Hammond was an estimated balance sheet of the three HMOs and

AmCareco after the acquisition

On April 29 1999 Susan Conway the attorney with Vinson Elkins

who represented AmCareco in the application process forwarded to each

state s Department of Insurance an updated version of the Cash Sweep and

Preferred A Share Calculation This calculation was based on balance sheets

for the quarter ending March 31 199919 It reflected accounting

adjustments and fund transfers to be made in connection with the closing

According to the Cash Sweep line item on the calculation sheet forwarded to

the Louisiana Department of Insurance LaDOI 243 531 was to be swept

from the Louisiana HMO on the sheet forwarded to the Oklahoma

Department of Insurance OkDO2 903 761 was to be swept from the

Oklahoma HMO and in the cover letter of the calculation sheet forwarded

to the Texas Department ofInsurance TxDOI 2 920 123 was to be swept

from the Texas HMO The total of these proposed sweeps was 6 067 415

On April 30 1999 the regulators in each state approved the acquisition of

the stock of the HMOs by AmCareco Upon the purchase of the stock of the

HMOs by AmCareco the HMOs became known as AmCare Health Plans of

18 Galtney testified that he invested 750 000 in AmCareco19 The balance sheets attached to the April 29 1999 electronic

facsimiles by Ms Conway to the state regulators included under CurrentLiabilities a line item identified as RestrictinglPremium Def This lineitem in other versions of the balance sheets was identified as

RestructuringlPremium Def The evidence shows this was intended to

refer to pre existing PDRs

17

Texas Inc AmCare TX AmCare Health Plans of Louisiana Inc

AmCare LA and AmCare Health Plans of Oklahoma Inc AmCare OK

A Closing Agreement between AmCareco and Health Net was

executed between April 30 and May 6 1999 In the Closing Agreement the

parties finalized the transaction waived certain conditions set forth in the

Stock Purchase Agreement and agreed to additional terms and conditions

The financial provisions of the spreadsheet remained the same It appears

the Closing Agreement was not gIVen to the regulators before or after

I fth20

approva 0 e aCQUISitIOn

The terms ofthe Closing Agreement included

3 Post Closing Covenants

q The Parties hereby acknowledge and agree that the

premium deficiency reserves of the acquired corporationsHMOs should be considered a Restructuring Reserve

and therefore reversed pursuant to Section 2 1 of the StockPurchase Agreement in order to calculate the Cash Paymentwhich reversal has been reflected in the FHS Cash Sweepand Preferred A Share Calculation prepared for Closing andattached as Exhibit E to this Agreement

The Cash Sweep and Preferred A Share Calculation attached as an exhibit to

the Closing Agreement reflected a cash sweep from Louisiana of

2 543 530 from Oklahoma of 2 903 761 and from Texas of 2 920 123

for a total of 8 367 414 The 2 543 530 represented the repayment ofthe

2 300 000 PDR loan and a Cash Payment of 243 531 The issuance of

preferred stock resulted in Health Net acquiring a forty seven percent 47

ownership interest in AmCareco

20 Betty Patterson Senior Associate Commissioner for the Financial

Department ofthe Texas Department ofInsurance testified she reviewed the

Closing Agreement

18

Following approval of the sale of the stock by the regulators each

HMO was a wholly owned subsidiary of AmCareco The HMOs

subsequently were managed by AmCare Management of Texas Inc

AmCare MGT a wholly owned subsidiary of AmCareco that was

incorporated by AmCareco After the acquisition Lucksinger continued to

serve as President and the CEO of AmCareco and the HMOs Nazarenus

served as the CFO and Nadler served as the COO

During the period immediately following the sale of the stock Health

Net and AmCareco entered into a Transition Services Agreement This

agreement provided that Health Net would provide certain administrative

and operational services to the HMOs such as E mail and computer system

assistance until AmCareco could assume those activities By the express

terms of the agreement AmCareco retained ultimate authority and

responsibility with Health Net merely providing the contracted services to

the HMOs

The Cash Payment was implemented on or about May 3 1999 At

that time the account authorizations at financial institutions where the

HMOs accounts were located did not authorize AmCareco to transfer funds

within the accounts Therefore Health Net with the concurrence of

AmCareco initiated wire transfers of the funds for the Cash Payment from

the HMOs accounts to Health Net The sum of 2 543 530 was transferred

from the Louisiana HMO 2 903 761 was transferred from the Oklahoma

HMO and 2 920 123 was transferred from the Texas HMO for a total Cash

Payment to Health Net of the 8 367 414

The Stock Purchase Agreement also required AmCareco to purchase a

2 million letter of credit to secure Health Net s redemption right This

letter of credit was established at Chase Bank on May 3 1999

19

According to state regulators approving the sale of stock AmCare LA

was required to maintain a minimum of 4 million in capital21

AmCare OK

was required to maintain a minimum net worth of 750 00022

and AmCare

TX had a surplus statutory requirement of 700 00023 for a total of

5 450 000

The first quarterly statements reported by the HMOs were for the

period ending June 30 1999 Amended documents prepared by AmCare

LA and filed with LaDOf4 reflect AmCare LA s net worth at 3 785 007

documents prepared by AmCare OK and filed with OkDO stated AmCare

OK s net worth at 2 129 991 amended documents prepared by AmCare

TX and filed with TxDOfs reflect AmCare TX s net worth at 936 947 for

a combined new worth ofthe three HMOs of 6 851 945

Based on the reported Louisiana financial statement LaDO contacted

AmCare LA in November of 1999 requesting that additional contributions

be made to bring AmCare LA s net worth up to the required 4 million

Correspondence between AmCare LA and LaDOI over the next several

months indicates LaDOI s continued concern regarding this deficiency

21 Pursuant to the April 30 1999 ruling by the Louisiana

Commissioner of Insurance approving the acquisition AmCare LA was to

maintain at all times a minimum capitol sicJ of 4 000 000 00 Four

Million dollars But see La R S 22 2010C22

Pursuant to 36 Okl St Ann 9 6913 Every health maintenance

organization licensed before the effective date of this act November 1

2003J shall maintain a minimum net worth of the greater of Seven Hundred

Fifty Thousand Dollars 750 000 0023 Pursuant to the 1998 V AT S Ins Code effective April 30 1999

article 20A 13U provided Notwithstanding any other provision of this

section the minimum surplus for a health maintenance organizationauthorized to provide basic health care services and having a surplus of less

than 1 500 000 shall be as follows1 700 000 by December31 1998

24An amended quarterly statement was forwarded to LaDOI on

September 24 199925

Amendments to the original filing were prepared on October 8 and

October 19 1999

20

Because AmCare LA continued to be below the net worth requirement in

April 2000 AmCare LA requested and LaDOI approved a monthly rather

than quarterly financial reporting schedule in lieu of an immediate cash

infusion from AmCareco

Texas Department of Insurance officials were concerned about the

financial condition and operations of AmCare TX and a meeting to discuss

their concerns was held in November 1999 At the meeting items to be

discussed included t he HMO s current statutory deposit and the HMO s

PDR and the methods used to calculate the reserve Notes from the

meeting show that Nazarenus indicated the paperwork is being processed

on the s tatutory deposit and is almost completed As to the issue of the

PDR Nazarenus indicated that the PDR reserve set up initially by

Foundation Health Net included a wind down reserve as of 12 3198

AmCare AmCare TXJ didn t think this reserve was necessary so they

amortized the full amount in the second quarter of 1999 Specific follow

up actions discussed were that Nazarenus will follow up later with

questions concerning the PDR calculation and t he HMO will submit to

TxDOIJ a request to release part ofthe Statutory Deposit by 1152000

PriceWaterhouseCoopers PWC audited AmCareco and its

subsidiaries for the eight month period from April 30 1999 through

December 31 1999 PWC reported AmCareco sustained a net loss of

9 192 165 and noted one of the Company s subsidiaries has not met the

prescribed minimum net worth requirements for the state of Louisiana

Following the date of the sale of stock the number of enrollees in the HMOs

increased from 33 550 in 1999 to 82 468 in 2000 and to approximately

105 000 110 000 in 2001

21

After the sale in 1999 all AmCareco personnel were employed by

AmCare MGT and it provided services to the HMOs pursuant to

management agreements

During the first two quarters of 2000 the HMOs continued to

experience financial difficulties Upon initial compilation of the required

second quarter 2000 financial filings Lucksinger informed Nazarenus and

Nadler by E mail on May 11 2000 of the need to discuss the Oklahoma

filing if it is going to show us out of statutory compliance Ifwe areJ then I

believe we should think about making some sort of intercompany

receivable capital contribution in order to not submit showing non

complianceIfwe show compliance regardless of how we get there they

should not push us on this issue at thistime

We will also need to

immediately fund the amount that we show as the intercompany payable

Nazarenus responded back We can reflect an I1C intercompanyJ

receivable and a capital contribution to get us into compliance at 3 3100

the funding of this contribution is a problem

After finalizing the second quarter 2000 filings Nazarenus informed

Lucksinger and Nadler

Louisiana requires a 200K capital contribution to maintain

the 4M net worth requirementLaDOI will be expecting an immediate cash transfer

to satisfy the capital contribution based upon the agreement I

reached with them earlier this year

Oklahoma the cash position was 0 actually it was an

overdraft of 780Knet worth was 770K but we now have a capital

contribution due to the plan of 225M to achieve this minimumnet

worthODl ODH the Oklahoma Department of Insurance

have been very hands off but I suspect that the lack of cash and

the minimum N W net worth may change theirposition

Texas the cash position was 0 actually it was an overdraft of200K

22

AmCareco received over 3 8 million in additional funding in

September 2000 In exchange for this amount of cash AmCareco issued

promissory notes to the investors who included Health Net Pearce and

Galtney In particular AmCareco issued to Health Net one promissory note

in the amount of I 750 000 00

In September and December 2000 AmCareco acquired two additional

health plans AmeriHealth and Sierra Texas Health Services Inc and it

purchased and began using a new claims adjudication computer system

According to Mark Tharp an insurance industry claims auditor during the

implementation and use of the new claims computer system approximately

11 million was paid out in ineligible payments overpayments andor

duplicative payments Following the acquisition of AmeriHealth

AmCareco reported to TxDOI an 8 million receivable in conjunction with

the acquisition which resulted from balance sheet differences and medical

loss ratio guarantees TxDOI approved this recording treatment but noted

Should the collectability of this receivable become questionable or a

dispute between the parties ariseJ then AmCare should report the

receivable as a non admitted asset In addition during 2000 and 2001

AmCareco continued to record intercompany receivables from AmCareco to

the HMOs to maintain statutory requirements However according to an

April 30 2001 investor update by Lucksinger AmCareco does not have the

resources to pay off these intercompany payables at this time

On August 17 200 I Lucksinger sent a memo to some individual

investors and to some officers at Health Net summarizing the difficult

financial condition of AmCareco and the HMOs and stating We are now

basically living from hand to mouth on our cash flow The memo confirms

23

AmCareco was Judiciously utilizing the vanous accounting treatments

available to AmCareco intercompany payables and cash on hand to stretch

2 3 million in total consolidated capital around to cover approximately 16

million in regulatory capital and cash reserve requirements and admits that

AmCareco has run out of smoke and mirrors The memo concludes with a

request for approximately 8 million in additional funding

The accounting treatments that Lucksinger mentioned included

moving cash among the HMOs AmCareco and AmCare MGT sometimes

on a daily or hourly basis For example documents reveal that during the

business day of July 17 2001 AmCare MGT engaged in the following

transactions which are sometimes referred to as the cash swirl 1

1 941 875 65 was transferred from AmCare LA to AmCareco 2

2 829 360 13 was transferred from AmCareco to AmCare OK 3

1 021 075 75 was transferred from AmCare OK to AmCare LA 4

89 450 76 was transferred from AmCare TX to AmCare OK 5 462 535

was transferred from AmCare TX to AmCare LA 6 200 000 00 was

transferred from AmCare LA to AmCare MGT and 7 900 000 00 was

transferred from AmCare MGT to AmCareco

Although Lucksinger identified and approached potential investors

requesting additional capital they and officers at Health Net declined to

provide any additional funding for AmCareco

In 2001 AmCareco had offices in the following locations 1

Houston Dallas and San Antonio Texas 2 Baton Rouge Shreveport and

New Orleans Louisiana and 3 Tulsa and Oklahoma City Oklahoma

AmCareco had 258 fulltime employees including 43 managerial and

executive personnel and 56 temporary employees and operation centers in

Houston and Tulsa At this time 7 575 shares of Class B Preferred Stock

24

had been issued to 14 shareholders 7 830 shares of Common Stock had been

issued to 15 shareholders and 7 050 employee stock options had been issued

to 42 persons

On May 1 2002 LaDO informed AmCare LA that it had been

placed under administrative supervision26

At the June 17 2002 meeting of the Board of Directors of AmCareco

Nazarenus finance report stated AmCareco s net worth was negative 16 7

million the intercompany receivables were 29 6 million processed but

unpaid claims totaled approximately 15 8 million and unprocessed claims

totaled 23 million

On July 26 2002 pursuant to the terms of the Stock Purchase

Agreement Health Net exercised its redemption right and collected the 2

million provided for by the letter of credit

II PROCEDURAL HISTORY

J Robert Wooley the Louisiana Commissioner of Insurance the

Commissioner had AmCare LA placed in Rehabilitation on September 23

200227 based on a determination by the Commissioner that AmCare LA was

financially troubled The order of Rehabilitation vested in the

Commissioner title to all property and other assets of AmCare LA

empowered the Commissioner to commence and defend any and all legal

actions concerning AmCare LA and provided for continuing the business

affairs of AmCare LA On October 7 2002 the Commissioner filed a

petition for the liquidation of AmCare LA and an order of injunction and an

order ofliquidation were entered the same day

See La R S 22 76827 Hereinafter for ease of identification the Commissioner may

sometimes be referred to as the Louisiana Commissioner and or theLouisiana Receiver

25

On December 16 2002 AmCare TX was placed into receivership and

a Texas Receiver was appointed On January 21 2003 AmCare TX was

placed in permanent receivership

On April 30 2002 AmCare OK s license to conduct business in

Oklahoma expired At that time AmCare OK filed an application for

renewal of its license On September 18 2002 AmCare OK s operations

were limited to conclusion of business and AmCare OK s application to

renew its business license was denied effective October 1 2002 On July 8

2003 AmCare OK was placed in receivership and an Oklahoma Receiver

was appointed The three state appointed Receivers are hereinafter

sometimes referred to collectively as the Receivers

On June 30 2003 the Louisiana Commissioner filed three actions in

the 19th Judicial District Court in and for East Baton Rouge Parish

Louisiana The first action Docket Number 499 737 was filed against the

directors and officers of AmCare LA AmCareco and AmCare MGT

hereinafter referred to as the D 0 action8 This action is a tort action

alleging the directors and officers failed to properly manage AmCare LA

Health Net was not named as a party defendant in this action at this time A

second action Docket Number 509 297 was filed against FHC Foundation

Health Systems Inc and its successor Health Net Inc seeking

enforcement of a parental guarantee suretyship contract executed by FHC

for the Louisiana HMO in 1996 the Louisiana parental guarantee action

The third action Docket Number 512 366 was filed against

28The named defendants in action number 499 737 were Thomas S

Lucksinger Michael D Nadler Stephen J Nazarenus Scott WestbrookMichael K Jhin William F Galtney Jr John P Mudd Executive Risk

Indemnity Inc Executive Risk Management Associates Executive Risk

Specialty Insurance Co Executive Liability Underwriters GreenwichInsurance Co AmCareco Inc and AmCare Management Inc This suitwas later amended to add XL Specialty Insurance Co as a defendant

26

PriceWaterhouseCoopers LLC a Delaware corporation doing business in

Louisiana the PWC action The third action asserted claims in tort for

accounting negligence and breach of contract by PWC AmCare LA s

d29

au ItOr

On September 30 2003 the Texas receiver filed an action in the

250th Judicial District Court in Travis County Texas entitled Johnson v

PWC Cause Number GN303897 the Johnson action The Johnson

action which the Oklahoma Receiver joined essentially named the same

defendants as the Louisiana actions and asserted the same substantive tort

claims as the Louisiana actions

On September 1 2004 the Oklahoma Receiver filed a petition for

intervention in the D 0 and the PWC actions in Louisiana asserting tort

causes of action3o

On September 13 2004 the Louisiana Oklahoma and

Texas Receivers filed a motion in the D 0 action seeking approval for the

joint litigation and prosecution of their claims The district court granted

the order for joint litigation on September 21 2004

On September 27 2004 the Texas Receiver filed petitions for

intervention in the D 0 and PWC actions asserting tort causes of action

and naming as defendants PWC Lucksinger Nadler Nazarenus Mudd

Jhin and Galtney Health Net was not named as a party defendant in these

interventions

On October 15 2004 the Texas Receiver filed a petition for

intervention in the Louisiana parental guarantee action This petition

cumulated Texas tort claims with the Louisiana contract action For the first

29 Shattuck Hammond is a division ofPWC30 Initially Carroll Fisher Commissioner of Insurance for the State of

Oklahoma in his capacity as Receiver was the named plaintiff in theOklahoma intervention During the course of the litigation Daryl Englishand then Kim Holland were substituted for Carroll Fisher

27

time the Texas Receiver named Health Net as a party defendant in these

proceedings On October 15 2004 the three Receivers filed a joint motion

to consolidate the three pending actions The minute entry for November 8

2004 states Next urged was a motion for intervention and motion to

consolidate filed on behalf of Oklahoma and Louisiana Receivers TJhe

motions were granted3

Further on October 15 2004 the Commissioner and the Oklahoma

Receiver filed an amended and restated petition in the consolidated actions

which cumulated the tort claims with the Louisiana contract claim Named

as defendants were Lucksinger Nadler Nazarenus Jhin Galtney Mudd

Westbrook Pearce Executive Risk Indemnity Inc Executive Risk

Specialty Insurance Company Executive Risk Management Association

Greenwich Insurance Company XL Specialty Foundation Health

Corporation Foundation Health Systems Inc Health Net Inc PWC

Proskauer Rose Stewart Rosow and AmCareco Inc This petition raised

claims of fraud conspiracy gross negligence negligence unjust enrichment

breach of fiduciary duties and breach of contract The Commissioner and

the Oklahoma Receiver sought compensatory and exemplary punitive

damages and attorney fees

Finally on October 15 2004 the Texas Receiver filed a first

supplemental and amending petition in the three consolidated actions

naming as defendants PWC Lucksinger Nadler Nazarenus Mudd Jhin

Galtney Pearce Foundation Health Corporation Foundation Health

Systems Inc Proskauer Rose Rosow and Health Net The Texas

3J The record contains an unsigned order apparently prepared bycounsel for the Louisiana Receiver which would grant the petitions to

intervene by the Oklahoma and Texas Receivers and would grant theReceivers motion to consolidate the three actions The record does not

contain a signed judgment granting these motions

28

Receiver s amended petition asserted claims of negligent misrepresentation

violation of the Texas Insurance Code fraud conspiracy and breach of

fiduciary duty and sought compensatory and exemplary punitive damages

and attorney fees

Several of the defendants and Health Net filed exceptions raIsmg

objections of lis pendens lack of personal jurisdiction lack of subject matter

jurisdiction prematurity vagueness improper cumulation prescription

peremption res judicata improper joinder no cause of action and no right

of action These exceptions were overruled Health Net filed a declinatory

exception raising the objection of improper venue The exception was

overruled and Health Net appealed

While Health Net s appeal of the venue issue was pending the trial

court proceeded with the three joint litigation and consolidated actions

On February 4 2005 Health Net filed its answer to the Consolidated

Amended and Restated Petition of the Louisiana and Oklahoma Receivers

On February 14 2005 Health Net filed an amended answer and a

reconventional demand against several named defendants and a third party

demand against the LaDOI raising claims of indemnity contribution

detrimental reliance and regulator fault32

Upon motion by the Louisiana

Receiver on May 9 2005 the trial court judge ruled as a matter of conflict

of laws law that Louisiana law applied to all procedural issues and Texas

law applied to all substantive issues raised by these actions Health Net filed

its answer to the Texas Receiver s petitions on June 13 2005 Before the

32 We note Health Net s amended answer was filed by electronicfacsimile transmission within the ten day delay allowed by La C cP art

1151 The record contains an original signed document filed on February15 2005 as required by La R S 13 850B1

29

trial began on June 16 2005 all defendants except Health Net settled 33 In a

common trial the trial court judge decided the claims of the Louisiana and

the Oklahoma Receivers and a jury decided the facts for the claims of the

Texas Receiver

On June 30 2005 in the Texas case the jury retumed a verdict

finding Health Net eighty five percent 85 at fault and Any other

Company fifteen percent 15 at fault and awarded 52 400 000 00 in

compensatory damages which was reduced to 44 540 000 00 in the

subsequent trial court judgment that memorialized the jury verdict The jury

awarded Texas 65 000 000 00 in punitive damages The jury also awarded

Health Net a dollar for dollar settlement credit reduction Health Net sought

a Judgment Notwithstanding the Verdict JNOV or alternatively a new trial

On November 3 2005 the trial court granted Health Net s JNOV as to fault

allocation apportioning fifteen percent 15 fault to other persons and

reduced the jury award of punitive damages by thirty percent 30 Health

Net s motion for a new trial was denied Both the judgment memorializing

33 Settlement documents between the Louisiana Receiver the

Oklahoma Receiver AmCareCo sic Inc Thomas S Lucksinger StephenJ Nazarenus Michael D Nadler William F Galtney Jr Michael K Jhin

John P Mudd Scott Westbrook Executive Risk Specialty Insurance

Company Executive Risk Indemnity Inc Executive Risk ManagementAssociates XL Specialty Insurance Company and Greenwich Insurance

Company are contained in the recordSettlement documents between the Louisiana Receiver and PWC are

contained in the recordSettlement documents between the plaintiffs and M Lee Pearce M D

are contained in the recordThe transcript contains a statement by counsel for Proskauer Rose and

Rosow that a settlement agreement between his clients and counsel for the

Louisiana Receiver had been reached and signed documents would be

submitted to the court However the record on appeal contains onlyunsigned settlement documents between the three Receivers Proskauer Rose

and Stuart Rosow

Although the Louisiana Receiver s petition contains instructions for

service upon defendant Executive Liabilities Underwriters the record does

not contain a return of service or an answer by this defendant

30

the jury verdict and the judgment rendering the JNOV were issued under all

three trial court docket numbers

On November 4 2005 the trial court rendered separate judgments in

favor of the Louisiana and Oklahoma plaintiffs and each judgment reflected

that it was rendered in all three of the trial court actions The trial court

found Health Net to be seventy percent 70 at fault Any other

Company fifteen percent 15 at fault and Any other Person s fifteen

percent 15 at fault and found Health Net liable for attorney fees and

punitive damages with quantum for the attorney fees and punitive damages

to be determined at a subsequent bifurcated trial The Louisiana plaintiff

was awarded 9 511 624 19 in compensatory damages reduced to

6 658 136 93 Health Net also was held liable under the Louisiana parental

guarantee for the full amount of 9 511 624 19 34The Oklahoma plaintiff

was awarded 24426 005 00 in compensatory damages reduced to

17 098 203 50

Health Net took suspensive appeals from the judgments in the three

docketed trial court actions The Texas Receiver took a devolutive appeal

from the trial court judgment and the judgment granting the JNOV in the

three trial court actions The Louisiana Receiver and the Oklahoma

Receiver each filed answers to Health Net s appeals of the judgments in

their favor35

34 Our opinion in Wooley v Foundation Health Corp etal District

Court Docket Numbers 499 737 c w 509 297 c w 512 366 Court of AppealDocket Numbers 2006 1140 1142 attached hereto and handed down this

day considers the issues raised by Health Net in their appeal of the award

pursuant to the parental guarantee35 Although the Louisiana and Oklahoma Receivers answered Health

Net s appeals their briefs abandon their answers and ask that the judgmentsbe affirmed

31

On December 6 20056

after the bifurcated trial on the issues of

quantum for the Louisiana and Oklahoma plaintiffs punitive damages and

attorney fees claims the trial court judge found the Louisiana plaintiff failed

to meet his burden of proof for these claims and dismissed the claims On

December 12 200537 the trial court judge found the Oklahoma plaintiff

failed to meet her burden ofproof for these claims and dismissed the claims

The Louisiana and Oklahoma plaintiffs then filed a motion seeking an award

of treble damages Health Net responded with a motion to strike the

election which was granted In addition the trial court granted Health Net s

request for a preliminary injunction enjoining the Texas and Oklahoma

plaintiffs from pursuing their claims against Health Net in the Johnson

action pending in Travis County Texas The trial court also sustained the

Louisiana plaintiff s exception raising the objection of no cause of action as

to Health Net s third party demand against LaDO asserting regulator fault

This Court in Wooley v AmCare 2005 2025 La App 1 Cir

10 25 06 944 So 2d 668 affirmed the trial court s ruling holding venue for

the Texas and Oklahoma interventions was proper in East Baton Rouge

Parish In Wooley v AmCare 2006 1146 1154 La App 1 Cir 117 07

952 So 2d 720 this Court held that the judgments dismissing the Louisiana

and Oklahoma exemplary damage and attorney fees claims were absolute

nullities reinstated the original judgments and dismissed those appeals In

Wooley v Lueksinger 2006 1164 1166 La App 1 Cir 5 4 07 961 So 2d

1225 this Court held the preliminary injunction granted to Health Net was

moot In Wooley v Lueksinger 2006 1167 1169 La App 1 Cir 5 4 07

961 So 2d 1228 this Court affirmed the trial court s dismissal of Health

36 This judgment is erroneously dated December 6 200037 This judgment is erroneously dated December 12 2000

32

Net s detrimental reliance claims and third party demands against LaDOI

and referred the regulator fault claim to the merits These judgments are

final and definitive La C C P art 2166

Ill INTERPRETATION OF LAWS

Louisiana Revised Statues 24 177 is entitled Legislative intent text

history and other indices of intent and provides in pertinent part as

follows

A When the meaning of a law cannot be ascertained by the

application of the provisions of Chapter 2 of the PreliminaryTitle of the Louisiana Civil Code and Chapter 1 of Title 1 of the

Louisiana Revised Statutes of 1950 the court shall consider the

intent of the legislature

B 1 The text of a law is the best evidence oflegislative intent

Chapter 2 of the Preliminary Title of the Louisiana Civil Code is entitled

Interpretation of Laws and is comprised of La C c arts 9 through 13

Chapter 1 of Title 1 of the Louisiana Revised Statutes is entitled

Interpretation of Revised Statutes and is comprised of La RS 1 1 through

17 When construing a law or a constitutional provision the word shall

universally is considered to mean mandatory La RS 1 3 La C C P art

5053 La C CrP art 5 La Ch C art 107 Champagne v Ward 2003

3211 p 21 La 119 05 893 So 2d 773 786

Accordingly the interpretation construction of a law or a

constitutional provision must start by applying the rules found in the

designated provisions of the Civil Code and the Revised Statutes to the

language of the law or the constitutional provision at issue P Lamonica

J Jones 20 La Civ Law Treatise Legislative Law and Procedure 9 74

pp 136 38 2004 and the authorities cited therein see Wooley 2006 1167

at p 12 961 So 2d at 1237

33

In Holly Smith Arehiteets Ine v St Helena Congregate

Faeility Ine 2006 0582 pp 9 10 La ll29 06 943 So2d 1037 1045

appears the following

When we are called upon to review legislativeprovisions this Court follows certain guidelines as we did in

Louisiana Municipal Association v State 04 0227 La

1 19 05 893 So 2d 809 In Louisiana Munieipal Assoeiation

2004 0227 at pp 35 36 893 So 2d at 836 37 this Court

recognized

Ouestions of law such as the proper interpretation of a

statute are reviewed by this court under the de novo standard of

review After our review we render iudgment on the record

without deference to the legal conclusions of the tribunals

below This court is the ultimate arbiter of the meaning of the

laws of this state

Legislation is the solemn expression of legislative will

and therefore the interpretation of a law involves primarily thesearch for the legislature s intent The interpretation of a

statute starts with the language of the statute itself When a law

is clear and unambiguous and its application does not lead to

absurd consequences the law shall be applied as written andno further interpretation may be made in search of the intent of

the legislature

The laws of statutory construction require that laws on

the same subiect matter must be interpreted in reference to each

other The legislature is presumed to have acted withdeliberation and to have enacted a statute in light of the

preceding statutes involving the same subject matter Underour long standing rules of statutory construction where it is

possible courts have a duty in the interpretation of a statute to

adopt a construction which harmonizes and reconciles it withother provisions dealing with the same subject matter

A statute must be applied and interpreted in a manner

that is logical and consistent with the presumed fair purposeand intention the Legislature had in enacting it In additioncourts are bound to give effect to all parts of a statute and

cannot give a statute an interpretation that makes any partsuperfluous or meaningless if that result can be avoided

Emphasis added footnote omitted38

38 The rules for the interpretation of laws in Texas and Oklahoma are

substantially the same as those in Louisiana and thus there is no conflict oflaws problem to be decided on this issue

When interpreting statutory language the Texas Supreme Court looksfirst and foremost to the plain meaning of the words Ameriean HomeProduets Corp v Clark 38 S W3d 92 95 96 Tex 2000 State v

34

See also M J Farms Ltd v Exxon Mobil Corp 2008 WL 2811534

2007 2371 pp 12 14 La 7 108 So 2d

IV STANDARDS FOR APPELLATE REVIEW OF FACTS AND

LAW

These consolidated actions assert causes of action that accrued in the

states of Louisiana Oklahoma and Texas When an action is filed in a state

asserting that a cause of action arose or accrued in another state initially the

applicable state law is determined by whether the issue involved is a matter

of substance right or a matter ofprocedure remedy Matters of procedure

are determined by the law of the forum ie the place where the action is

filed Wooley 2005 2025 at p 17 944 So 2d at 678 and the authorities

cited therein

In Louisiana the standards for appellate review are considered

procedural in nature and the constitution law and jurisprudence of this state

Shumake 199 S W 3d 279 284 Tex 2006 If the statute is clear and

unambiguous words are applied according to their common meaning Id

Interpretation should give effect to every word clause and sentence Cityof Marshall v City of Uncertain 206 S W3d 97 105 Tex 2006 When

divining legislative intent the truest manifestation of what lawmakersintended is what they enacted the literal text they voted on Alex

SheshunoffManagement Serviees L P v Johnson 209 S W3d 644 651Tex 2006 See also V T CA Government Code Construction Act

S311 001 et seqThe Oklahoma Supreme Court recently stated that the cardinal rule of

statutory construction is to ascertain the intent of the legislature and if

possible give effect to all its provisions Bed Bath Beyond Ine v

Bonat 2008 OK 47 11 186 P3d 952 955 A statute must be read to

render every part operative and to avoid rendering parts thereof superfluousor useless Moran v City of Del City 2003 OK 57 8 77 P3d 588 591

Absent an ambiguity the intent is settled by the language of the provisionitself and the courts are not at liberty to search beyond the instrument for

meaning In re Protest Against the Tax Levy of Ardmore IndependentSehool No 19 for Fiseal Year 1997 1998 1998 OK 43 7 959 P 2d 580The primary goal of statutory construction is to ascertain and follow theintent of the legislature Cooper v State ex rei Dep t of Publie Safety1996 OK 49 10 917 P 2d 466 The words of a statute will be given their

plain and ordinary meaning unless it is contrary to the purpose and intent of

the statute when considered as a whole Samman v Multiple Injury TrustFund 2001 OK 71 11 33 P 3d 302

35

control Milstead v Diamond M Offshore Ine 95 2446 p 11 La

7 2 96 676 So 2d 89 95 96 Accordingly we will review these

consolidated actions pursuant to the Louisiana standards for the appellate

review of facts and law

Pursuant to LA CaNST art V S 10 A and B Courts of Appeal

have appellate jurisdiction to review all civil matters and have the power

and authority to review law and facts This language is clear and

unambiguous This constitutional jurisdiction to review the law and facts is

plenary and unlimited See also LA CaNST art V 9 5 C Such a review is

referred to as a de novo review A de novo review or an appeal de novo is

a n appeal in which the appellate court uses the trial court s record but

reviews the evidence and law without deference to the trial court s rulings

Emphasis added BLACK S LAW DICTIONARY 94 7th ed 1999

The constitution is implemented by La CC P art 2164 which

provides in pertinent part as follows

The appellate court shall render any judgment which is

just legal and proper upon the record on appeal

Official Revision Comment a for Article 2164 provides as follows

a The purpose of this article is to give the appellate court

complete freedom to do iustice on the record irrespective ofwhether a particular legal point or theory was made argued or

passed on by the court below This article insures that the

theory of a case doctrine which has served to introduce theworst features of the common law writ system into Louisiana isnot applicable to appeals under this Code See Hubert The

Theory of a Case in Louisiana 24 TulLRev 66 1949Emphasis added

See also La C C P arts 1635 and 212939 In F Maraist H Lemmon 1

La Civ Law Treatise Civil Procedure 9 14 9 p 382 1999 appears the

following

39 Compare La C C P art 1636 and La C E art 103

36

An appellate court vested with the authority to render

any judgment that is just legal and proper upon the record mayconsider an issue raised for the first time on appeal or may even

consider an issue not raised by the parties if its resolution is

necessary for a Troper iudgment on the record Emphasisadded footnote omitted

Although the constitutional power and authority of appellate courts to

review facts in civil cases is plenary and unlimited jurisprudence has

evolved that requires that trial court findings of fact must be reviewed on

appeal pursuant to the manifest error clearly wrong standard of review

Hebert v Rapids Parish Poliee Jury 2006 2001 p 24 La 4 1107 974

So 2d 635 653 54 on rehearing Areeneaux v Domingue 365 So 2d

1330 1333 La 1978 Maraist Lemmon 1 La Civ Law Treatise Civil

Procedure S 1414 p 391 98 This standard of appellate review is a two

part test 1 the appellate court must find from the record whether there is a

reasonable factual basis for the finding of the factfinder and 2 the appellate

court must further determine whether the record establishes the finding is not

manifestly erroneous clearly wrong Mart v Hill 505 So2d 1120 1127

La 1987 Factual findings should not be reversed on appeal absent

manifest error Rosell v ESCO 549 So2d 840 844 La 1989 If the trial

court s or jury s factual findings are reasonable in light of the record

reviewed in its entirety the court of appeal may not reverse Sistler v

Liberty Mutual Ins Co 558 So 2d 1106 1112 La 1990 Consequently

when there are two permissible views of the evidence the factfinder s

choice between them cannot be manifestly erroneous Stobart v State

Through Department of Transportation Development 617 So 2d 880

883 La 1993 Sistler 558 So 2d at 1112

Finally in Maraist Lemmon 1 La Civ Law Treatise Civil

Procedure 9 14 14 at 395 96 appears the following

37

The manifest error rule assumes that the trier of fact

applied the correct law in reaching its conclusion If the trier of

fact applied the incorrect law because of erroneous and

prejudicial jury instructions or because of erroneous and

prejudicial procedural or evidentiary rulings and if the

appellate court determines the error could have affected the

outcome below the manifest error rule does not apply and the

appellate court makes an independent determination of the facts

from the record on appeal The appellate court then decides the

case on the record facts without according any deference to the

factual findings of the trial court whether judge or juryHowever if the error in instructions or in evidentiary rulingsaffects only one of several parts of a verdict or judgment the

appellate court may disregard those factual findings affected bythe error while according the usual deference to the unaffected

findings Emphasis added footnotes omitted

Questions of law are reviewed by appellate courts in Louisiana under the de

novo standard Holly Smith Arehiteets Ine 2006 0582 at p 9 943

So 2d at 1045 Louisiana Municipal Assoeiation v State 2004 0227 p 35

La 1 19 05 893 So 2d 809 836 Hall v Folger Coffee Co 2003 1734 p

10 La 4 14 04 874 So2d 90 99 Cf Braneh Hines v Hebert 939 F 2d

1311 1317 and 1320 5th Cir La 1991 Accordingly we will review the

law applicable herein without deference to the trial court s rulings oflaw

V CONFLICT OF LAWS

Louisiana s choice of Iaw rules are found in La C C art 3515 et seq

and apply in Louisiana actions that involve contacts with other states La

C C arts 14 and 3517 La cc art 14 provides as follows

Unless otherwise expressly provided by the law of this

state cases having contacts with other states are governed bythe law selected in accordance with the provision of Book IV of

this Code

In Champagne 2003 3211 at p 11 893 So 2d at 780 appears the

following

Choice ofLaw Provisions

Unless otherwise expressly provided by the law of thisstate cases having contacts with other states are governed bythe law selected in accordance with the provisions of Book IV

38

of the Civil Code La C C art 14 The residual nature of the

provisions of Book IV is established by the introductory phraseof La C C art 14 that reads unless otherwise expresslyprovided by the law of this state La C C art 14 Revision

Comment b This phrase means that the provisions of BookIV are not intended to supercede more specific choice of Iaw

rules contained in other Louisiana statutes such as theInsurance Code See La R S 22 611 et seq Id When

applicable those rules being more specific will prevail over

the provisions of Book IV of the Civil Code40

Emphasisadded

A Confliet ofLaws Faets

The nominal plaintiffs III these consolidated and Joint Source

Proceedings are the Insurance Commissioners and Receivers for

Liquidation for the states of Louisiana Oklahoma and Texas These

plaintiffs are acting on behalf of and in the interest of the policyholders

enrollees members subscribers providers and creditors of the Louisiana

Oklahoma and Texas HMOs that are in liquidation and the three HMOs

All of the Commissioners and Receivers are domiciled in their respective

states The three HMOs were incorporated in and had their principal places

ofbusiness in their respective states

40 The Louisiana Insurance Code is comprised of La R S 22 1 3312

La R S 22 611 etseq is Part XIV of the Code entitled THE INSURANCECONTRACT and currently comprises La R S 22 611 682 Pursuant to

2008 La Acts 415 effective January 1 2009 the Insurance Code will berenumbered without changing the substance of the provisions We will

identify the statutes by the number utilized before the 2009 renumberingPursuant to La R S 22 20027 a health maintenance organization isdeemed to be an insurer for the purposes of R S 22 213 6 and 213 7 Part

XVI comprised ofR S 22 731 through 774 Part XXI A comprised ofRS

22 1001 through 1015 and Part XXVI B comprised of R S 22 1241

through 1247 1 of Chapter 1 of this Title A health maintenance

organization shall not be considered an insurer for any other purposeEmphasis added Except for La R S 22 657 La R S 22 611 et seq does

not apply to HMOs Part XVI of the Louisiana Insurance Code pertains to

the rehabilitation liquidation conseryation dissolution and administrative

supervision of all insurers or persons purporting to be doing an insurancebusiness in this state La RS 22 732 Part XXI A pertains to insurance

holding companies and Part XXVI B pertains to insurance fraud

39

The domiciles of the defendants are in numerous states Lucksinger

Nadler Nazarenus Jhin and Galtney are domiciled in Texas Mudd and

Pearce are domiciled in Florida Rosow is domiciled in New York Health

Net was incorporated in Delaware and its principal place of business is in

California AmCareco was incorporated in Delaware and its principal place

of business is in Texas PWC is a partnership chartered in Delaware with

partners residing in Louisiana and it does business in Louisiana Proskauer

Rose is a foreign law firm operating as a limited liability partnership under

New York law has its principal place of business in New York and is

qualified to do business in Louisiana Several foreign insurers doing

business in Louisiana also were named as defendants La CC arts 3518

and 3548

The conduct of which the plaintiffs complain allegedly occurred in the

states of Louisiana Oklahoma Texas California and New York A

substantial majority of the conduct occurred in Texas The following

conduct occurred in Louisiana and Oklahoma 1 selling memberships or

policies 2 collecting premiums 3 processing of claims 4 day to day

operations 5 commercial advertising and 6 failing to pay claims

benefits or other contractual obligations of policyholders enrollees

members subscribers providers employees and other creditors The three

HMOs did business only in their respective states

The extent of the alleged injury caused by the conduct can be

estimated by the compensatory damage awards given in the trial court

Those awards were I 52 400 000 00 61 for Texas 2 9 511 62419

11 for Louisiana and 3 24 426 005 00 28 for Oklahoma

B The Ruling of the Trial Court on the Issue of Choiee of Law

40

On October 15 2004 the Louisiana and Oklahoma Receivers filed a

joint motion in limine to determine the law applicable to various

substantive issues in this matter Emphasis added On May 9 2005 a

contradictory hearing was held on this motion in the trial court The

following is the pertinent portion ofthe hearing transcript

THE COURT Court overruled the final exception Now we

need to get back to the choice of law

It appears Mr Cullens Counsel for the Louisiana andOklahoma Receivers to this court and I know Mr PercyCounsel for Health Net will correct me but it appears that

what you allele and contend in your petition that there was a

design and an enterprise which resulted in fraud negligenceunfair trade practice that it had its genesis in the state of Texas

that it had its tentacles that reached into five other of the fiftystates that the damage was treble r because it had a rippleeffect so that the damage occurred in Texas as well as in the

five other states on the front line and in the secondary to the

forty five other states

That is what I have gleaned from reading the several

petitions filed in this matter and the innumerable memorandaand all of the argument That s what it appears that you are

trying to get to trial on Is that correct or incorrect

MR CULLENS Yes in the nutshell Your Honor and we

also not that there is any magic to the words but fiduciaryduty claims as well

THE COURT That being the case it appears to this court thatthere is a single business enterprise very akin in the criminal

law to but I don t want to say those dirty words Mr Percyand send you into cardiac arrest but you know the words I am

thinking of We have been down that aisle before

But in any event it seems that the Texas substantive law

should indeed apply because in the opinion of this court as

outlined in the foregoing statements that the genesis occurredin Texas the enterprise the design the impact quite a bit of thedamage and that it had a ripple effect

The court views this as no more than multistate litigationwhich this court has certainly handled many times before and

parties are aligned in accordance with parallel interests

Additionally these parties are clothed with the indicia ofsome governmental authority allowed to exercise a delegationwithin the police power of the Executive Branch of the several

41

sister states allowing them to adjudicate claims that they are

peculiarly situated to have addressed in anyone or more fora

Each of the several states having joined the compact on

the uniform law a substantial abiding interest in seeing that its

consumers policyholders citizens other persons includingjuristic persons are protected to the full extent of the law and

which claims should be justiciable quickly efficiently without

undue delay and without undue expense

Therefore with respect to the choice of law the court is

going to apply Texas law on the substantive issues of law as

outlined and is going to apply Louisiana law on the proceduralissues Whether an issue is substantive or procedural there is

quite a bit of jurisprudence Of course each circuit has its own

jurisprudence on that issue but we can get through that Mr

McKernan Counsel for the Texas Receiver

Therefore the court will sign iudgment in accordance

with its ruling Five days to take writs Anything further41

Emphasis added

C Applieable Conflict of Laws Rules

The threshold question in determining the application of La C C art

3515 et seq is whether there is a true conflict a false conflict or no conflict

Champagne 2003 3211 at p 22 893 So 2d at 786 Areeneaux v AmStar

Corp 2005 0177 p 3 La App 4 Cir 12 14 05 921 So 2d 189 191

Tolliver v Naor 115 F Supp 2d 697 701 BD La 2000 In re

Combustion Ine 960 F Supp 1056 1067 W D La 1997 Louisiana

Civil Code Article 3515 is the first article in Book IV entitled CONFLICT

OF LAWS and states the basic and general policy that an issue in a case

having contacts with other states is governed by the law of the state whose

policies would be most seriously impaired if its law were not applied to that

41 The record on appeal does not contain a judgment memorializingthis trial court interlocutory judgment See La C C P art 1914 However

the court minutes for May 9 2005 reflect the following

Initially argued was Motion on Issue of Choice of Law filed on

behalf of La Ok Receivers thereafter submitted to the Court

Whereupon for Oral Reasons assigned the Court will applyTexas Law to substantive matters and apply Louisiana Law as

to procedural matters

42

issue Emphasis added Obviously if the laws of two states are

substantially identical then there is no conflict Thus La C c art 3544 1

provides in pertinent part p ersons domiciled in states whose law on the

particular issue is substantially identical shall be treated as if domiciled in

the same state Revision Comments 1991 f42 for Article 3544 provides

as follows

Parties domiciled in states with identical law The

second sentence of subparagraph I provides that personsdomiciled in states whose law on the particular issue of loss

distribution is substantially identical should be treated as if

domiciled in the same state This legal fiction is justified byboth policy and practical considerations From a policyviewpoint this rule is supported by the same factors as the

common domicile rule See comment e supra From a

practical viewpoint this rule will alleviate the court s choice

of law burden by properly identifying and resolving as false

conflicts all cases in which the victim and the tortfeasor were

domiciled in states whose law on the issue of financial

protection was substantially identical This rule will also proveuseful in cases involving multiple victims or multipletortfeasors because it will enable the court to treat as

domiciliaries of the same state those victims or tortfeasors whoare domiciled in states with substantially identical law

Emphasis added

See also Tolliver 115 F Supp 2d at 702 A false conflict occurs when it is

determined that only a single state has an interest in the application of its law

to an issue and the other state involved has no interest in the application of

its law to the issue Areeneaux 2005 0177 at p 3 921 So 2d at 191 In re

Combustion Ine 960 F Supp at 1067

Once a true conflict is identified courts are required to apply the rules

of La C C art 3515 et seq on an issue by issue or issue specific basis

In Favaroth v Appleyard 2000 0359 p 4 La App 4 Cir 5 2 01 785

So 2d 262 265 appears the following

42 La CC art 3515 et seq was enacted by 1991 La Acts No 923

Section 3 of that Act provides that the comments in this Act are not part of

the law and are not enacted into law by virtue oftheir inclusion in this Act

43

Under Louisiana s choice of law rules a sweeping

determination that the law of one state applies to the case as

opposed to an issue in a case constitutes a derogation of the

appropriate analysis When a conflict exists with regard to

more than one issue each issue should be analyzed separatelyOne result of this analysis might be that the laws of different

states may be applied to different issues in the same dispute or

depelage Comment d to LSA CC art 3515 Emphasisadded

Revision Comments 1991 d for La C C art 3515 provides as follows

Issue by issue analysis and depel age The use of the term

issue in the first paragraph of this Article is intended to focus

the choice of law process on the particular issue as to which

there exists an actual conflict of laws When a conflict exists

with regard to only one issue the court should focus on the

factual contacts and policies that are pertinent to that issueWhen a conflict exists with regard to more than one issue each

issue should be analyzed separately since each may implicatedifferent states or may bring into play different policies of

these states Seen from another angle each state having factualcontacts with a given multi state case may not have an equallystrong interest in regulating all issues in the case but only those

issues that actually implicate its policies in a significant way

This so called issue by issue analysis is an integralfeature of all modem American choice of Iaw methodologiesand facilitates a more nuanced and individualized resolution of

conflicts problems One result of this analysis might be that thelaws of different states may be applied to different issues in thesame dispute This phenomenon is known in conflicts literature

by its French name of depelage Although infrequentlyreferred to by this name this phenomenon is now a common

occurrence in the United States and has received official

recognition in Europe This Article does not prohibit depelageHowever depelage should not be pursued for its own sakeThe unnecessary splitting of the case should be avoided

especially when it results in distorting the policies of theinvolved states

See also Murden v Acands Inc 2005 0319 p 5 La App 4 Cir

12 14 05 921 So 2d 165 169 writ denied 2006 0129 La 4 17 06 526

So 2d 926 Rigdon v Pittsburgh Tank Tower Co Inc 95 2611 p 5

La App 1 Cir 11 8 96 682 So 2d 1303 1306 Thomas v Fidelity

Brokerage Services Inc 977 F Supp 791 794 WD La 1997 In re

Ford Motor Co Bronco D Product Liability Litigation 177 FRD 360

44

370 71 E D La 1977 F Maraist T Galligan Louisiana Tort Law S

22 05 p 22 23 2d ed 2007 A review of the trial judge s ruling at the

hearing to determine the appropriate choice of law rules reflects that she

made a sweeping determination that the law of one state applied Texas

and she did not conduct an issue by issue analysis as required by La C C

art 3515 et seq This is error and it was exacerbated by the initial refusal of

the trial court judge to timely file written findings of fact and reasons for

judgment in the Louisiana and Oklahoma cases and her subsequent refusal to

comply with the order of this Court that she state the pertinent constitutional

provisions laws and jurisprudence upon which her various decisions were

based43

The record does not reflect that Health Net excepted to the trial court

choice of Iaw ruling However La C C P art 1635 provides as follows

Formal exceptions to rulings or orders of the court are

unnecessary For all purposes it is sufficient that a party at the

time the ruling or order of the court is made or sought makes

known to the court the action which he desires the court to take

or his objection to the action of the court and his groundstherefor and if a party has no opportunity to object to a rulingor order at the time it is made the absence of an objection does

not thereafter prejudice him Emphasis added

Health Net has not assigned error for the choice of Iaw ruling in this appeal

In Georgia Gulf Corp v Board of Ethics forPublic Employees 96 1907

p 4 La 5 9 1997 694 So 2d 173 175 76 appears the following

From the outset the Ethics Commission asserts that the

due process issues were not raised in the administrative

proceedings were not assigned as error on the appellate level

and are not properly before us We disagree

La Code Civ P art 2129 provides that an assignment of

errors is not necessary in any appeal Code of Practice of 1870Art 896 one of the source provisions for La Code Civ P art

43 A complete discussion of the effect of the trial court s failure to

timely provide written findings of fact and reasons for judgment is contained

in Part VII of this opinion

45

2129 provided that if the trial court record was not certified bythe clerk of court of the lower court as containing all of the

testimony the supreme court would only judge the case on a

statement of the facts Code of Practice of 1870 Art 897

another source provision for La Code Civ P art 2129 providedthat an appellant who did not rely wholly or in part on a

statement of facts an exception to the judge s opinion or a

special verdict but on an error of law appearing on the face of

the record would be allowed ten days after the lodging of the

record to file a statement alleging any errors The Official

Revision Comments under La Code Civ P art 2129 records

that the jurisprudence under the old Code of Practice articles

construed them to mean that where there was a certified

transcript containing all of the testimony and the grounds for

reversal were apparent from the face of the record no

assignment of errors was required La Code Civ P art 2129

simply codified this jurisprudence

Moreover La Code Civ P art 2164 provides that an

appellate court shall render any judgment which is just legaland proper upon the record on appeaL As noted in the OfficialRevision Comments under Art 2164 the appellate court has

complete freedom to do justice on the record irrespective of

whether a particular legal point or theory was made argued or

passed on by the court below In a similar vein Uniform

Rules of Louisiana Court of Appeal Rule l 3 provides that

even in the absence of an assignment of errors the appellatecourt can review such issues if the interest of justice clearlyreqUIre s

Under the codal authorities cited herein above it is clear

that the appellate court had the right to consider the issue of due

process even though there was no assignment of error in that

regard Accordingly we find that the due process issue is also

properly before us

See also Berg v Zummo 2000 1699 p 13 n 5 La 4 25 01 786 So 2d

708 716 n 5 Nicholas v Allstate Ins Co 99 2522 pp 6 10 La

8 31 00 765 So 2d 1017 1022 1024 Determining the proper choice of

law law to be applied to an issue is a question of law for which this court has

the plenary and unlimited constitutional power and authority to review de

novo Foshee v Torch Operating Co 99 1863 pp 17 18 La App 3 Cir

5 17 00 763 So 2d 82 92 93 Cf Duhon v Union Pacific Resources

Co 43 F 3d 1011 1013 CA 5 La 1995 Accordingly we will conduct

the required issue by issue de novo analysis to decide the assignments of

46

error in this case and if the trial court committed error determine whether

this trial court error was prejudicial for any issue so decided44

See the

excellent discussion of the effect of a legal error in Duzon v Stallworth

2001 1187 pp 30 32 La App I Cir 12 1102 866 So2d 837 860 861

writ denied 2003 0589 La 5 2 03 842 So 2d 1101 and 2003 0605 La

5 2103 842 So 2d 1110

With the exception of the Louisiana contractual claim pertaining to

the Health Net parental guarantee45

all of the other causes of action asserted

by the plaintiffs involve delictual obligations The choice of law rules for

delictual obligations torts are provided for in Title VII of Book IV of the

Civil Code comprised of La CC arts 3542 3548

Louisiana Civil Code Article 3542 provides as follows

Except as otherwise provided in this Title an issue of

delictual or quasi delictual obligations is governed by the law

of the state whose policies would be most seriously impaired if

its law were not applied to that issue

That state is determined by evaluating the strength and

pertinence of the relevant policies of the involved states in the

light of 1 the pertinent contacts of each state to the partiesand the events giving rise to the dispute including the place ofconduct and injury the domicile habitual residence or place of

business of the parties and the state in which the relationship if

any between the parties was centered and 2 the policiesreferred to in Article 3515 as well as the policies of deterringwrongful conduct and of repairing the consequences of

injurious acts

The first paragraph of Article 3542 repeats the basic premise of Louisiana

choice of Iaw that the impairment of other states interests in Louisiana

44 If the law of Texas is substantially identical to the law of Louisianait would not be prejudicial error to apply Texas law rather than the law ofLouisiana The same would be true in the case of a false conflict

Prejudicial error can result only from the application of the wrong law onlyif there is a true conflict

45In brief and oral argument the parties agreed that the Louisiana

parental guarantee claim was contractual and controlled by Louisiana

conventional obligation law La C C art 3537 et seq

47

litigation should be minimized The second paragraph lists the following

factors to be considered when determining whether a state s policies may be

impaired if its law was not applied to a particular issue 1 place of conduct

2 place of injury 3 domicile of the parties 4 state in which the

relationship between the parties is centered 5 policy for deterring

wrongful conduct and 6 policy for repairing the consequences of injurious

acts

What constitutes domicile is provided for in La C c arts 3518 and

3548 Article 3518 provides as follows

For the purposes ofthis Book the domicile of a person is

determined in accordance with the law of this state A juridicalperson may be treated as a domiciliary of either the state of itsformation or the state of its principal place of business

whichever is most pertinent to the particular issue

The Louisiana substantive law on domicile is found in La CC arts 38 4646

Louisiana Civil Code Article 3548 provides as follows

For the purposes of this Title and provided it is

appropriate under the principles of Article 3542 a juridicalperson that is domiciled outside this state but which transacts

business in this state and incurs a delictual or quasi delictual

obligation arising from activity within this state shall be treatedas a domicilary of this state

When determining a choice of law problem involving delictual and

quasi delictual obligations the most important issues are those pertaining to

a state s standards of conduct and safety and its policies pertaining to loss

distribution and financial protection Louisiana Civil Code Article 3543

provides as follows

Issues pertaining to standards of conduct and safety are

governed by the law of the state in which the conduct thatcaused the injury occurred if the injury occurred in that state or

in another state whose law did not provide for a higher standard

of conduct

46 La C C arts 38 46 relative to domicile were amended by 2008 La

Acts No 801 effective January 1 2009

48

In all other cases those issues are governed by the law of

the state in which the injury occurred provided that the personwhose conduct caused the injury should have foreseen its

occurrence in that state

The preceding paragraph does not apply to cases in

which the conduct that caused the injury occurred in this state

and was caused by a person who was domiciled in or had

another significant connection with this state These cases are

governed by the law of this state

Louisiana Civil Code Article 3544 provides as follows

Issues pertaining to loss distribution and financial

protection are governed as between a person injured by an

offense or quasi offense and the person who caused the injuryby the law designated in the following order

1 If at the time of the injury the injured person and the

person who caused the injury were domiciled in the same state

by the law of that state Persons domiciled in states whose lawon the particular issue is substantially identical shall be treated

as if domiciled in the same state

2 If at the time of the injury the injured person and the

person who caused the injury were domiciled in different states

a when both the injury and the conduct that caused it occurred

in one of those states by the law of that state and b when the

injury and the conduct that caused it occurred in different states

by the law of the state in which the injury occurred providedthat i the injured person was domiciled in that state ii the

person who caused the injury should have foreseen its

occurrence in that state and iii the law of that state providedfor a higher standard of financial protection for the injuredperson than did the law of the state in which the injuriousconduct occurred

The distinction between issues of standards of conduct and safety

and those of loss distribution and financial protection is set forth in

Revision Comments 1991 of La C c art 3543 as follows

a Scope and terminology This Article applies to issues

pertaining to standards of conduct and safety as distinguishedfrom issues of loss distribution and financial protection whichare governed by Article 3544 infra This distinction drawsfrom the substantive law of torts and its two fundamental

obiectives deterrence and compensation By way ofillustration so called rules of the road establish or pertain to

standards of conduct and safety whereas rules that impose a

ceiling on the amount of compensatory damages or provide

49

immunity from suit are rules of loss distribution and financial

protection From the choice of Iaw perspective the reason for

distinguishing between conduct regulating rules and loss

distribution rules is the fact that their operation in space abides

by different principles Thus while conduct regulating rules

are territorially oriented compensation or loss distribution rules

are usuallv not so oriented A state s policy of deterrence

embodied in its conduct regulating rules is implicated in all

substandard conduct that occurs within its territory even if the

parties involved are not domiciled in that state Conversely a

state s loss distribution policy mayor may not extend to non

domiciliaries acting within its territory but does extend to

domiciliaries even when they act outside the state For the

origin and rationale of this distinction in American conflicts

law see Symeonides Choice of Law for Torts 441 44

Emphasis added

Finally the relationship of Article 3542 with Articles 3543 3546 is

described in Revision Comments 1991 for Article 3542 as follows

b Relation to other articles of this Title The approach of this

Article is further implemented by specific rules contained in

Articles 3543 3546 infra which are a priori legislativedeterminations of the state whose policies would be most

seriously impaired if its law were not applied Being more

specific these Articles should when applicable prevail over

this Article However as with any a priori rules Articles 3543

3546 may in exceptional cases produce a result that is

incompatible with the general obiective of Article 3542 in

pursuance of which they were drafted In order to avoid such a

result Article 3547 contains an escape clause which when

applicable refers these cases back to Article 3542 Moreover

Articles 3543 3546 do not cover the entire spectrum of cases or

issues that might fall under the general hearings of these

Articles but only those cases that appeared to be susceptible to

a clear and noncontroversial choice of Iaw rule The remainingcases or issues are governed by this Article as the residualarticle Thus Article 3542 is intended to perform a general as

well as a residual role In its residual role this Article appliesto all cases and issues that are not included within the scope of

Articles 3543 3546 In its general role this Article will helpdetermine whether issues that do fall within the general scopeof Articles 3543 3546 should be decided under the rules

contained therein or under the escape clause of Article 3547which refers them back to Article 3542 Emphasis added

Louisiana Civil Code Article 3547 provides as follows

The law applicable under Articles 3543 3546 shall not

apply if from the totality of the circumstances ofan exceptionalcase it is clearly evident under the principles of Article 3542that the policies of another state would be more seriously

50